GameStop is not having a happy time of it right now. The US firm has undergone multiple management changes (and the sad death of its CEO), and it is now up for sale. During October, it delivered strong sales but still reported a $488.6 million loss. This has been the result of a major charge of $557.3 million due to a sustained decline of its share price. But it has seen most of its sales come from lower-margin products, with high-margin goods like pre-owned showing signs of serious decline.
GameStop also warned that Christmas sales will be "below expectations" due to a drop in pre-owned, aggressive sales activity and the under-performance of specific titles.
That under-performance of specific titles is key. Out of the big games this Christmas a few have done well, namely Red Dead Redemption 2. But a number of typically big-selling physical games (Call of Duty, FIFA, Battlefield and Fallout) have all failed to drive the usual numbers.
Some of that is due to the transition towards digital. Although physical still takes the bulk of sales, EA, Ubisoft, Activision and Take-Two are all reporting a faster-than-expected move to downloading. Indeed, publishers are reporting that between 30% and 40% of game sales are now digital.
GAME is facing the same challenges as GameStop (specifically a switch to lower-margin goods), and it saw sales declines during its last financial year. However, the UK chain is in a slightly better position due to the investment from retail giant Sports Direct in its Belong in-store concepts - which are local esports style areas where consumers pay-to-play. The company also has very short leases on its stores, allowing it to reduce costs quickly if needed.
Belong is still not generating significant revenue for GAME, but the retailer believes it will and that it will define the future of the business. Likewise, GameStop has put a lot of its emphasis behind pop culture, comic books and merchandise - areas that continue to be popular.
Yet there's no disguising that sales are down. Profit is down. The transition to digital is marching on. The number of places selling physical video game goods are on the slide. Surely it's a case of when physical games retail falls, not if?
Well, the data doesn't especially back that up. The business model is undoubtedly challenged, and when you have shareholders demanding growth there are some serious issues for GAME and GameStop to work out.
Yet it's easy to forget what a remarkably physical business video games continues to be. Software is going increasingly digital, but it's still primarily physical - by the end of the year there will be three games to sell more than one million boxed copies each in the UK (FIFA 19, Red Dead Redemption 2 and Call of Duty: Black Ops 4). Over 16.5 million brand new boxed games have been bought over the last 11 months - that's 8% down, but it's still a significant number.
Only three weeks ago, a special physical bundle of Fortnite was released - a free-to-play game - and it's already approaching 100,000 copies sold in the UK alone. There's a clear market for physical.
Transitioning from a primarily software-based business to a hardware, merchandise and event-based business is going to take time and pain. Yet with the amount of money on the table, it's in the interest of the games business - particularly those at the top - to ensure these specialist stores have the room to make this transition.
Games retail had a horrible 2018 and 2019 may be harder still. But physical games retail is not dead. Not even nearly.
Even though we can say that physical games will not entirely die and game shops can sell other stuff (including hardware), I don't think the dev industry really care much about them and the situation will most likely not improve. How long until we see more game shops closing or how long until they transform themselves to a point where they finally settle down in a more sustainable yearly profits?
When PS4 will hit 100m consoles sold: Before Christmas 2019
There were three ravens sat on a tree / They were as blacke as they might be / The one of them said to his mate, Where shall we our breakfast take?